How to Convert Lifetime Annuity Payouts Into Annual Interest Rate

Here’s a small Excel spreadsheet you can create to convert any single-premium annuity payout into an equivalent annual interest rate. (Boldface cells are for input.)

A

B

1

Premium

$100,000

2

Mo. Payment

$712.50

3

Period in Years

18.16

4

Monthly Rate

0.34%

5

Annual Rate

4.10%

The formula to enter in output cell B4: = RATE((B3*12),B2,-B1))

The formula in output cell B5: = POWER(1+B4,12)-1

To estimate average life expectancy for males or females of any given age, using U.S. population mortality, click here.

Example: A female age 67 is offered a lifetime annuity payout of $712.50 per month, for a $100,000 premium. She has a life expectancy of 18.16 years. If she collects payments until life expectancy, she will earn the equivalent of an annual interest rate of 4.1 percent on her money. (Note: The calculator assumes no “period certain” or residual value after life expectancy.)

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